IMAGE APPARELS P.LTD,MUMBAI vs. ITO 8(2)(1), MUMBAI

HT tty efexT atf "ut" dz IN THE INCOME TAX APPELLATE TRIBUNAL "/"BENCH, MUMBAI {fef 7ov, #01 TA W<H TTT *if,7fir TaR Before S/Shri Rajendra, A.M. and Ram Lal Negi, J.M. TTIdg#UTA No.7524/Mum/2013 Rtefr Ti /Assessment Year: 2005-06 Mls Image Apparels Pvt. Ltd, Income Tax Officer, Block no.3, Govardhan Bld No.2, 8(2)(1), 4' Floor, Aaykar Bhavan, Parekh Street, Prarthana Samaj; Vs; Mumbai-400 004. M,KRoad, Churchgate, Mumbai-400020. PAN:AAACH712J (eriffareff /Appellant) (Tareff Respondent) Revenue by: Shri Saurabh Kumar Rai DR Assessee by: Shri Dharan Gandhi TTf # -rfq Date of Hearing: 01/08/2017 FT9TT Ta Date of Pronouncement: 16.10.2017 aTttr #faftt,[961 HTrT 254(1)$ 37tfa 38 Order u/s.254()of the Income-tax Act,l961(Aet) #TTTEIIz & IUK-Per RajeudmAM: Challenging the order dated 29.10.2013 of CIT(A)-17, Mumbai the assessee has filed the present appeal. A 'ssessce/Company engaged in Ihe business of manufacturing of readymade garments and dealing in shares file its return of income on 18.10.2005, declaring total income of Rs.3.77 lacs. The Assessing Officer(AO) completed the assessment W/s.143 (3) Of the Act O) 28.12 1.2007,determining its income at Rs.22.76 lacs. 2 During the course of hearing before uS Uhic: Authorised Representative stated that the assessee Was nOl intcrested in persuing second and third grounds of appeal The Departmental Representative (DR opposed withdrawal of grounds In our opinionit is the prerogative ofthe party (0 press or not to press the grounds raised by itIn the case under consideration there is an unqualified withdrawal of the grounds no.2 and 3 by the assessee Hence,we dismiss both the ground,dealing with applicability of section SOC of the Acl,as not pressed, Bricf Eacts 3During the assessment proccedings,the AO found that the assessec had purchased plot of land along with 5 other co-owners on 30/08/1995.that its share in the said land Ivas I5% its share of cost was Rs.56,25,000,that vide deed of modification of 28.02.200L,it relinquished 1S% share in the Said land in favour of one of the co-owners viz. Pantaloon Retail (India) Ltd,that the consideration for the said relinquishment was Rs.56.25,000 plus constructed area in the basement admeasuring 104. 96s4. mtrs,that it had shown net considera 7521/Mum/z013 Of Image Apparels P Lid tion of Rs. 12,50,000/- from sale of property and thc cost of acquisition Of property was taken at Nil,that it had calculated thc capital gains at Rs.12.50 lakhsthat the said amount was invested in Rural Electrification Corporation Ltd. Bonds and exemption Wl S S4EC was claimed The AO,in the assessment proceedings,adopted Rs.31.48,800/- as the sale considera ~tion for computing LTCG being the value of the property sold for the purpose of stamp duty payment by invoking provisions of sec. SOC: In the appellate proceedings the First Appellate Authority(FAAJconfirmed the action of the AO and also directed him t0 take the cost of acquisition at Rs.7,91,000/ a5 per the valuation report filed by the assessee. Further appeal was filed by the department before the ITAT and the Tribuanl remitted the matter of working of LTCG to the file of AO to re-examine. 3.1.The AO,in his order passed in pursuance of the directions of the Tribunal considered the submissions of the assessee and held that it had IS% share in plot of land purchased the share of' cost was Rs. 56,25,000/-that there was a cash consideration of Rs.56,25,000/- plus kind consideration of basement area,that the same was in thc nature Of gain,that the assessce had not shown any capital gain and the cost of acquisition was Nil in respect 0f' basement area that the assessee itself had submitted that it was partial barter transaction wherein it had transferred the rights in the original plot of land for consideration including cash and basement area,that it had received back its original cost of Rs.56,25,6 OOO/-along with the basement area,no cOsl Was attached t0 it and that cost of acquisition had t0 be adopted as Nil. He distinguished the cases: Groz Beckret Saboo Lid. (12/6 ITR 125) and Laxmi Jain (89 ITD 470) relied upon by the assessee by saying that facts of these cases were entirely different than the case of the assessee. As regards the application of provisions of section SOC,it was stated that the assessee had failed to adduce any evidence that it had challenged the valuation of stamp authority,that it had accepted the same and got its property registered . Considering these facts,Rs.31.48,000/-, being the value adopted for the purpose of' payment of stamp duty.` was considered a$ full value of consideration received for the purposes of computation of LTCG and capital gain was worked out at Rs. 18,98,800/ 3.2.Aggrieved by the order of the AO.he assessce filed an appeal before the FAA again and made details submissions along with the case laws.A fter considering the available material the FAA held the assessee in its return of income had taken the net consideration of the property sold at Rs: 12,50,000/-and the related cost of acquisition at Rs. Nilthat it worked out the LTCG on the entire receipt and invested it in Rural Electrification Corporation Ltd. Bonds and excmption U/ $. S4EC was claimed,that in the first round of appellate proceedings 7521 /Mum/201 3 of Image Apparels P 1ud the AO in the remand report rejecled the admission of the additional evidence of a valuation report which was submitted by the assessee in the appeal proceedings for the lirst time; that the then FAA had accepted the valuation report and taken the cost of" acquisition al Rs.7,91,000/- and full value of consideration at Rs.31,48,000/-determined as per the stamp valuation authority and after indexation the long term capital gain were determined at Rs.9,62,828/-that the assessee had transferred its share in joint property t0 one of its Co- venturer for & consideration He referred to the case of T.N, Aravinda Reddy 120 ITR 46). held that wherein it had been held that the word 'purchase' occurring in section 54(1) of the Act had to be given its common meaning, viz , buy for price Or equivalent of price by payment in kind or adjustment towards debt or for other monetary considerationthat the transfer made by the assessee'$ of its share in the joint property was & transfer Referring to the provisions of section 51 of the Acthe held that if the advance or other money received and retained or forfeited by the assessee it would be dedueted from cost of acquisition and not the one received and relained Or forfeited by the previous owner that Section 5 / provided that any money received or advance forfeited by the seller of a property was deductible from the cost of the asset, that word 'indexed cost of' acquisition' was nowhere mentioned in Seetion 5T of the Act,that cost of acquisition was rightly taken a$ Nil by the AO though on different ground He also made a reference to section SOC of the Act and held that only real income should be assessed,that once provision Was inserted in the Act t0 deem particular amount as income Of the assessee then by virtue of such fiction that amount would be income of the assessee unless & discretion Was provided t0 the AO to consider Otherwise_that the legislature had thought it proper to substitute valuation by stamp valuation authority as sale considera tion for sale consideration recorded in the sale deed,that the intention was tO plug tax evasion resulting from understatement of sale consideration.that having not disputed the value adopted the Stamp Valuation Authority in any appeal; the assessee could nOl argue that the Value adopted by the said Authority should be 60% of the ready recknor value since the said property is in the basement,that most common and widely practiced way of avoiding tax had been t understate the sale consideration Of properties resulting in avoidance of capital gain and underpayment of stamp duty,that the Act contained provisions enabling the Ao.s to adopt fair market value for thc property at their discretion. Finally he upheld the order of the AO. 3.4.Before us,the AR submitted that the assessee had claimed before the AO that the Fair Market Valuc(FMV)of the Property was quite lower than the Stamp Duty Value,that it had submitted a copy of Valuation Report of the said property obtained from a Registered Valuer 7521/MMum/2013 o( Juntage Apparels F Lia wherein the FMV of' the property was estimated at Rs. 12,43,000,that the Stamp property sold,being basement area,the Stamp Duty Value would have been 60% of the normal value as per ready reckoner;that the AO had misinterpreted the entire factual matrix . He also relied upon the cases of Sir Kikabhai Premchand()Spunpipe Construction Co (Baroda) (P.) Ltd () Atul G. Puranik() Leelavati Mehta(),Smt. Laxmi Jain and Shri Upendra Shah() and CBDT circular No. 415 dated 14.03.1985, As an alternate contention,he argued that the coSt of acquisition of basement waS nol ascertainable as it was received by way of relinquishment of rights in land.that the capital gain was not chargeable to tax as held in B. C. Srinivasa Setty (128 [TR 294) and Cadell Weaving Mill Co. P. Ltd( 249 ITR 265). The DR contended that assessee Was changing his Stand consistently, that it has raised the issue of applieability of secetion SOC of the Act; that the |S% share in the plot of land WaS relinquished for consideration of Rs.56.25 lacs plus (+) constructed arca in the basement, that the assessee had not offered capital gains on the said transaction, that the AO had rightly taken the LTCG at Rs./8.98 lacs: He strongly relied upon the order of the FAA. 3.5.We have heard the rival submissions and perused the material before us.We find that this is the second round of' litigation that the matter had travelled up t0 the Tribunal and 1445 restored back to the file of the AO for fresh adjudication,that issue remitted to the file of the AO was determination of LTCG Facts of the case are that the assessee ,along with five other co-owners had purchased plot of' Iand on 30/08/1995,that its share in the plot was 5%/,that it relinquished its share,in favour of' onc of the co-owners,vide deed of modilication of 28.02.200/,that the consideration for the said relinquishment waS Rs.56.25 lakhs and constructed area of the basement,that during the year under appeal it sold the basement ared for a consideration of Rs.12.50 lakhs and invested the entire amount in Rural Electrification Corporation Ltd Bonds,that it elaimed exemption Ws S4EC of the Act,that during the assessment proceedings a request was made t0 the AO to allow FMV of the basement area on 28/02/2001 as its cost of' acquisition,that the AO held the assessee had received back Rs.56. 25 lakhs, that cost of acquisition of basement area was NIL as no 28/02/2001, 3.5.1.Thus the basic difference between the AO and the assessee is about FMV as on 28/02/ 2001.The assessee vide by agreement February,200| had transferred its 15%/ share in land in consideration of Rs.56.25 lakhs plus basement area [04.96 sq mtr.In our opinion FMV of basement Area On that date has to be taken &s futll value of consideration for transfer Of rights in [S% land. Consequently it would be cost of acquisition for subsequent sale of basement 7521/Mum2on3 of Image Apparels P Ltd Area Thus; there are two independent transactions in the eyes of law.In the first transaction the assessee had relinquished its part( ! S%)in the plot of' land in lieu of a sum of Rs 56.25 lakhs and constructed basement area in the AY.200/-O2.that in the year under appeal it sold basement area In Other words,claim made by the assesse-that there were two transactions in two different A Y s-is factually and legally correct So,we are of the opinion that taxation of the previous transaction i.e. relinquishment of !5% share in the land in receipt of money and constructed basement area in AY.2001-01 would not in any way alter thc character of" subsequent transaction i.e. sale of basement area in AY.2005-06. Here, we would like to refer to the matter of' Bomi $. Billimoria (35 SOT /8) In that case the assessec was granted certain shares as ESOP He he sold the shares on the date of exercise of' option itself at the prevailing market price The AO took cost of acquisition as NIL and taxed the entire selling price as STCG The Tribunal held that the market value on the dale of exercise was t0 be taken as cost of acquisition even though the Same waS not taxed 25 perquisite We are reproducing the relevant portion of the order of the Tribunal and it reads a5 under: "Even if it is assumed that the market value of share is the benefit given to the assessee; such benefit ean he said to accrue to the assessee only on the date of exercise of tke option: In the instant case; the date of exercise Qf option aS well aS the date of sale is same and thus there is no difference between the deemed cost of aequisition and the actual price realisec by the assessee and thus the learned CIT(4) was not justified in directing the Assessing Officer to bring (0 tax the amount Qf Rs. 5.44,925 aS short-term capital gain Under these circumstances We set aside the orders passed by the tax authorities and direct the Assessing Officer to exclude the impugned amount from the computation of income In the case 0f Nirmal Bhogilal the Tribunal in its order dated 23.11.2005 had dealt with similar kind of issueIn that matter it was held that market value of plot of' Iand received in consideration of compulsorily acquired land had to be allowed as cost of acquisition while calculating capital gains on its subsequent sale.The Tribunal had relied upon the case of Groz Beckert Saboo Ltd.(16 ITR [25)while deciding the issue Circular NO.415 dtd.14.03.1985 has also approved the principle of two independent transaction Of same asset It has been clarified in the circular that exchange of gold bonds for gold redemption would be a fresh transaction and that when gold was t0 be sold subsequently market value of gold bonds was to be taken as its cost of acquisition. 3.5.2.We would also like to emphasise that each AY.is self-contained accounting period and one can only take into consideration income, profits and gains made in that year Revenue authorities are not entitled to assess such Sums as the income of the previous years in some Other and subsequent years There are Other means and Ways (0 tax such escaped income but 7521/Mut2013 of Juage Apparels P Ltd to tax in the Jater year in not approved by the provisions of Act lt is Fact that previous transaction of relinquishment of IS% share in land for consideration of Rs.56.25 Iakhs plus constructed area in basement was not taxed But,non taxing of that transaction in the relevant AY.ie.2001-02 would nOt give any right (0 the AO t0 tax it in the year under appeal. 3.5.3.As stated earlier;the assessec did not persue the grounds wherein application of provisions f section SOC were challenged The FAA had applied Section S1 of the Act We would like to mention that Section 5 / would apply only in case of an aborted sale of a capital asset and it would not apply to situation where actual transfer of capital asset takes place In the case under consideration property Was transferred and the basic issue was to determine the value of LTCG Therefore,in our opinion,there Was no justification for invoking the provisions 0f section 51 of the Act Considering the above we hold that FMV of basemnent arca as on 28/02/200 | was the Cost of Acquisition of the asset for the assessee for calculating capital gain for the year under appeal. First ground Of appeal is allowed in favour ofthe assessee: 4,Next effective ground of appeal(GOA-4Jis about Jevy of" interest U/s.220 of" the Act Pursuant to remand of the matter by the Tribunal the AO passes a fresh assessment order: The AO,during Ihe remand proceedings made additions in respect of capital gains by taking the full value of consideration as the Stamp Duty Value of the property did not allow the indexed cost of acquisition from the said full value of consideration Consequently. there arose 3 tax Viability . On assessce $ failure t0 pay demand within prescribed time,he levied interest W/s.220(2) Of the Actamounting to Rs: 1.84.435/-.As per the assessee interest was calculated from the date of the original assessment order and not from the fresh assessment order: The FAA,in the appellate proceedings upheld the order of the AO. 4.1.Before usthe AR stated that as per Sec 220(2Jinterest has to be levied under this section only if the amount specified in the notice of demand was not paid within thirty days of the service Of the notice to the assessee He referred t0 the relevant portions of the section and stated that in the present case interest had t0 be levied oly if demand as specified in the notice issue W/s 156 giving effect to order Ws 143(3) r.ws 254 (later assessment) was not paid within 30 days from the date of service of that notice that the notice of demand uls 56 waS received by the assessee on 24.12.2012 and 30 days had to be calculated from the same date,that interest ufs 220(2) should have been levied only from the date when the date when the demand became due as per the fresh assessment order and not from the date of' the 152//Mum/z0| 3 of mage Apparels P Ltd. assessment order He relied upon the case of Chika Overseas P Ltd (209 Taxman original 456). The DR left the issue to the discretion of the Bench: 4.2 We find that the AO had levied interest Ws.220(2)of the Act from the date of original whereas the fresh assessment Was passed as per the directions of the Tribunal The assessment Hon ble Bombay High Court in the case of' (supraJhas dealt with the same issue The lacts of were that the original assessment Was set aside by the Tribunal with direction to the case assessment order and the AO levied the interest from the date of original date of pass fresh The Tribunal held that the assessee was not liable to pay interest from the the assessment_ date of assessment Deciding the appeal filed by the Department,the Honble Bombay original High court has held as under: dispute that the original assessment order dt. 28"1 Feb; 1997 In the present case, it is not in with 4 direction t0 pass fresh assessment order: Accordingty; waS set aside hy the Tribunal on 24th Dec; , 2006 and the demand notice waS served On fresh assessment order waS passed 24th1 Dec:, 2006. As per 220(1) of the Act, the assessee was liable to pay the amount of demand notice dt. 24th Dec;, 2006. It is oly demand within thirty days from the service of the assessee fails to pay the amount demanded, within thirty days %f the service of the demand notice dt. 24th Dec: 2006 aS stipulated under $ 220(1) of the Act, the assessee wes Iiable to 220(2) of the Act. If the liability to pav interest under 220(2) (ises pay interest under thirty days of the service Of the demand notice dt, 2 Ath Dec; 2006, the question of afier period prior to 24th Dec = 2006 does not arise 0{ all; Neitier tho demanding interest for the assessment order dt.24th Dec;, 2006 nor the demand notice dt. 24th Dee: 2006 required the interest after thirty' days from the date of service of the original demand assessee (0 pay notice dt. 28th Feb , 1997 Since the demand itself was crystallized under the assessment 220(1 of the Act had time t0 poy clc order di , 2ih Dec: 2006 ad the assessee under of" the demand notice dt. 2 4th Dec; 2006, ahe demand upto thirty days of the service interest under 220(2) Qf the argument of the Revenue that the ussessee was liable t0 pay Act, for the period prior t0 the crystallization 0f the demand on 24th Dec;,, 2006 cannot he Therefore, in the facts of the present case; the decision of the Tribunal in holding sustained that theassesserejo liable to pay interest under $. 220(2) of the Act from the end of the period mentioned in $ 220(1) of the Act ie. thirty days after the service 0f notice Of demand dt. 24th paid canol he faulted. Dec , 2006 till the date on which the amoumt demanded was following the above,we decide ground no.4 in favour Of the assessee. Respectfully [ As a resull , appeal filed by the assessee stands partly allowed: 577: Atuffd ETT 21fi7 # 7f &nft7 #oTT: TNVT 7TRT ongthetober; Order pronounced in the open court 2017. arao # &w 5a ATITT4 # Rrniv IJ4rat, 2017 # ##f1 sJ/ sJj Ram Lal Negi} (TZ RAJENDRA) (TT MTa #ff JUDICIAL MEMBER 4ut 447 ACCOUNTANT MEMBER 7TFTT 77F4 9a Murnbai; fenirDated 13.10.2017. LSES aar # neft 4fiCopy of the_Order frwarded J0 2. Respondent mTaraff LAppellant rsrfTarsff